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 1	
  
Duterte	
  -­‐	
  A	
  Boon	
  or	
  Bane	
  to	
  the	
  Resources	
  Industry?	
  
	
  
President	
  Rodrigo	
  Roa	
  Duterte	
  will	
  handle	
  many	
  issues	
  that	
  will	
  have	
  an	
  impact	
  on	
  
the	
  resources	
  industry	
  as	
  he	
  embark	
  on	
  his	
  six	
  years	
  of	
  governance.	
  A	
  few	
  of	
  these	
  
important	
  issues	
  include	
  the	
  proposed	
  shift	
  to	
  a	
  federal	
  form	
  of	
  government,	
  peace	
  
and	
   order,	
   the	
   role	
   of	
   the	
   mineral	
   industry	
   in	
   economic	
   development,	
   renewable	
  
energy	
  vis	
  a	
  vis	
  coal-­‐fired	
  power	
  plants,	
  and	
  the	
  West	
  Philippine	
  Sea	
  dispute	
  with	
  
China.	
  	
  	
  
	
  
Duterte	
   is	
   the	
   first	
   City	
   Mayor	
   and	
   Prosecutor	
   to	
   become	
   president	
   without	
  
previously	
  holding	
  a	
  national	
  position	
  and	
  the	
  oldest	
  to	
  assume	
  the	
  presidency	
  at	
  71	
  
years	
  old.	
  He	
  is	
  the	
  first	
  chief	
  executive	
  from	
  Mindanao	
  bringing	
  with	
  him	
  extensive	
  
managerial	
   skills	
   as	
   mayor	
   of	
   multi-­‐cultured	
   Davao	
   City,	
   the	
   city	
   with	
   the	
   largest	
  
land	
   area	
   in	
   the	
   Philippines	
   and	
   formerly	
   a	
   hotbed	
   of	
   criminality	
   and	
   insurgency	
  
from	
  both	
  communist	
  rebels	
  and	
  Muslim	
  secessionists.	
  
	
  
Laying	
  the	
  Grounds	
  for	
  Federalism	
  
	
  
Duterte	
   was	
   one	
   of	
   advocates	
   for	
   the	
   push	
   for	
   federalism	
   during	
   the	
   campaign	
  
period.	
   Coming	
   from	
   Mindanao,	
   Duterte	
   supports	
   greater	
   decentralization,	
  
autonomy	
   and	
   resource	
   sharing	
   for	
   the	
   South	
   from	
   “Imperial	
   Manila”.	
   To	
   him,	
  
federalism	
   is	
   the	
   antidote	
   to	
   bureaucratic	
   centralism	
   –	
   a	
   legacy	
   of	
   old	
   colonial	
  
powers	
  and	
  ruling	
  political	
  dynasties	
  that	
  cultivate	
  corruption	
  and	
  patronage.	
  When	
  
one	
  thinks	
  of	
  examples	
  of	
  federalist	
  countries,	
  the	
  firsts	
  that	
  will	
  always	
  come	
  to	
  
mind	
  are	
  the	
  United	
  States	
  of	
  America	
  and	
  Commonwealth	
  of	
  Australia.	
  	
  
	
  
The	
  calls	
  for	
  charter	
  change	
  have	
  been	
  persistent	
  over	
  the	
  years	
  as	
  many	
  agree	
  that	
  
the	
   1987	
  Constitution	
   is	
   flawed.	
   Bills	
   calling	
   for	
   an	
   amendment	
   or	
   revision	
   of	
   the	
  
present	
   constitution	
   have	
   not	
   prospered	
   as	
   many	
   argued	
   that	
   it	
   is	
   nothing	
   but	
   a	
  
veiled	
   attempt	
   of	
   the	
   incumbent	
   Chief	
   Executive	
   to	
   be	
   given	
   a	
   term	
   extension.	
  
Presently,	
  the	
  idea	
  for	
  a	
  charter	
  change	
  is	
  not	
  about	
  giving	
  the	
  sitting	
  president	
  a	
  
term	
   extension	
   but	
   most	
   likely	
   shifting	
   from	
   a	
   unitary-­‐presidential	
   system	
   to	
   a	
  
federal-­‐parliamentary	
   form	
   of	
   government	
   through	
   an	
   elected	
   constitutional	
  
convention.	
  
	
  
The	
   Citizens	
   Movement	
   for	
   a	
   Federal	
   Philippines	
   noted	
   that	
   the	
   current	
   unitary	
  
system	
   breeds	
   inefficiency	
   because	
   of	
   the	
   following	
   factors:	
   detached	
   decision	
  
making	
  from	
  the	
  people;	
  complex	
  and	
  complicated	
  coordination	
  among	
  the	
  different	
  
government	
   agencies;	
   long	
   and	
   circuitous	
   communication	
   lines;	
   and	
   over-­‐
concentration	
  of	
  powers	
  in	
  the	
  central	
  government.	
  These	
  have	
  resulted	
  to	
  uneven	
  
development,	
  insurgency,	
  and	
  dissatisfaction	
  across	
  the	
  country.1	
  
	
  
Gamper	
  (2005)	
  enumerates	
  the	
  following	
  institutional	
  standards	
  that	
  are	
  present	
  in	
  
federal	
  systems:	
  distribution	
  of	
  powers	
  between	
  the	
  central	
  and	
  constituent	
  units,	
  
the	
   participation	
   of	
   the	
   constituent	
   at	
   the	
   central	
   level	
   of	
   decision-­‐making,	
  
constitutional	
   autonomy	
   of	
   the	
   constituent	
   units,	
   fiscal	
   equalization	
   and	
  
 2	
  
intergovernmental	
   instruments.2	
  	
   While	
   federalism	
   is	
   not	
   the	
   cure,	
   it	
   may	
   be	
   an	
  
answer	
   to	
   the	
   country’s	
   problems	
   that	
   are	
   rooted	
   in	
   its	
   multi-­‐cultural	
   nature.3	
  	
  
However,	
  federalism’s	
  complex	
  nature	
  demands	
  careful	
  study	
  as	
  each	
  country	
  must	
  
discern	
  for	
  itself	
  the	
  version	
  of	
  federalism	
  it	
  will	
  be	
  well	
  suited	
  to.	
  That	
  said,	
  the	
  
constitutional	
   framers	
   must	
   also	
   be	
   conscious	
   of	
   the	
   unique	
   conditions	
   in	
   the	
  
Philippines	
  that	
  will	
  shape	
  the	
  type	
  of	
  federation	
  to	
  be	
  adopted.4	
  	
  
	
  
The	
   Regalian	
   Doctrine	
   posits	
   the	
   query	
   on	
   the	
   implications	
   of	
   federalism	
   on	
   the	
  
exploration,	
   development	
   and	
   utilization	
   of	
   natural	
   resources.	
   While	
   the	
   Regalian	
  
Doctrine	
  means	
  that	
  all	
  the	
  lands	
  are	
  owned	
  by	
  the	
  State,	
  federalism	
  as	
  a	
  form	
  of	
  
government	
  may	
  possibly	
  blur	
  the	
  lines	
  between	
  what	
  are	
  owned	
  by	
  the	
  State	
  as	
  a	
  
whole	
  and	
  what	
  are	
  owned	
  by	
  the	
  federal	
  subdivisions	
  in	
  their	
  own	
  capacity.	
  The	
  
charter	
  change	
  to	
  federalism	
  will	
  also	
  be	
  an	
  opportune	
  time	
  to	
  lift	
  the	
  restrictive	
  
economic	
   provisions	
   in	
   the	
   Constitution	
   and	
   grant	
   more	
   foreign	
   ownership	
   in	
  
certain	
  industries	
  including	
  energy	
  and	
  resources.	
  
	
  
The	
  “Punisher”	
  and	
  His	
  Crusade	
  for	
  Peace	
  and	
  Order	
  
	
  
Among	
   the	
   campaign	
   promises	
   of	
   Duterte	
   were	
   curbing	
   criminality	
   and	
   forging	
  
lasting	
   peace	
   with	
   sworn	
   enemies	
   of	
   the	
   Philippine	
   government.	
   	
   There	
   are	
   now	
  
relentless	
   efforts	
   by	
   the	
   new	
   administration	
   to	
   address	
   common	
   crimes	
   in	
   urban	
  
areas	
   and	
   renewed	
   focus	
   to	
   solve	
   insurgencies	
   and	
   terrorism	
   in	
   the	
   countryside.	
  	
  
Direct	
   foreign	
   investments	
   in	
   infrastructure	
   and	
   natural	
   resources	
   have	
   been	
  
hindered	
  in	
  poverty-­‐stricken	
  areas	
  where	
  they	
  are	
  much	
  needed	
  because	
  of	
  security	
  
issues.	
  
	
  
The	
   Duterte	
   administration	
   recommenced	
   the	
   stalled	
   peace	
   process	
   with	
   the	
  
communists	
   when	
   government	
   peace	
   negotiators	
   met	
   with	
   representatives	
   of	
   the	
  
political	
   arm	
   of	
   the	
   Communist	
   Party	
   of	
   the	
   Philippines,	
   the	
   National	
   Democratic	
  
Front	
  in	
  Oslo,	
  Norway	
  on	
  13-­‐14	
  June	
  2016.	
  	
  Talks	
  with	
  Muslim	
  secessionist	
  groups	
  
are	
  being	
  planned	
  with	
  Duterte	
  hoping	
  that	
  federalism	
  will	
  finally	
  be	
  the	
  solution	
  to	
  
the	
  Mindanao	
  conflict.	
  
	
  
Richard	
  Javad	
  Heydarian	
  who	
  teaches	
  political	
  science	
  and	
  international	
  affairs	
  at	
  
De	
   La	
   Salle	
   University	
   and	
   a	
   widely	
   published	
   author	
   whose	
   commentaries	
   have	
  
appeared	
  in	
  the	
  New	
  York	
  Times	
  and	
  the	
  Wall	
  Street	
  Journal,	
  believes	
  that	
  in	
  peace	
  
talks	
  with	
  communists	
  and	
  Muslim	
  rebels,	
  Duterte	
  will	
  rely	
  heavily	
  on	
  Jesus	
  Dureza,	
  
an	
   experienced	
   peace	
   negotiator	
   who	
   served	
   in	
   the	
   previous	
   Ramos	
   and	
   Arroyo	
  
administrations.	
   Duterte	
   has	
   also	
   given	
   cabinet	
   positions,	
   like	
   the	
   Department	
   of	
  
Agrarian	
   Reform	
   and	
   Department	
   of	
   Social	
   Welfare	
   and	
   Development,	
   to	
  
progressives	
  forging	
  a	
  de	
  facto	
  coalition	
  with	
  the	
  left.	
  Heydarian	
  thinks	
  that	
  Duterte,	
  
is	
   signaling	
   change	
   and	
   continuity,	
   by	
   forming	
   a	
   balanced	
   and	
   gender	
   sensitive	
  
cabinet	
   with	
   the	
   right	
   kind	
   of	
   experience	
   and	
   inclusiveness	
   that	
   could	
   steer	
   the	
  
country	
  towards	
  the	
  next	
  stage	
  of	
  development.	
  Duterte	
  has	
  pledged	
  to	
  continue	
  the	
  
reforms	
   of	
   previous	
   administrations	
   while	
   upgrading	
   them	
   by	
   bringing	
   in	
   more	
  
rapid	
   infrastructure	
   development,	
   agricultural	
   sector	
   revival,	
   and	
   manufacturing	
  
 3	
  
boom.	
  5	
  If	
  Duterte	
  is	
  true	
  to	
  his	
  promise,	
  we	
  may	
  see	
  a	
  surge	
  in	
  foreign	
  investments	
  
particularly	
   in	
   Southern	
   Philippines,	
   which	
   has	
   a	
   tremendous	
   potential	
   to	
   be	
   the	
  
country’s	
  next	
  growth	
  driver.	
  
	
  
Mixed	
  Signals	
  on	
  the	
  West	
  Philippine	
  Sea	
  Dispute	
  and	
  Foreign	
  Policy	
  
	
  
In	
  international	
  affairs,	
  Duterte’s	
  position	
  on	
  the	
  West	
  Philippine	
  Sea	
  is	
  generally	
  
misunderstood.	
  He	
  pledges	
  to	
  try	
  to	
  implement	
  any	
  decision	
  of	
  the	
  Permanent	
  Court	
  
of	
   Arbitration	
   in	
   The	
   Hague	
   currently	
   hearing	
   the	
   maritime	
   dispute,	
   which	
   is	
  
decision	
  is	
  widely	
  anticipated	
  to	
  be	
  favourable	
  to	
  the	
  Philippines,	
  but	
  at	
  the	
  same	
  
time	
  pragmatic	
  on	
  the	
  enforceability	
  of	
  the	
  judgment.	
  Duterte	
  said	
  he	
  is	
  open	
  to	
  joint	
  
resource	
   development	
   schemes	
   in	
   order	
   to	
   overcome	
   intractable	
   sovereignty	
  
disputes	
  with	
  China,	
  or	
  that	
  he	
  would	
  base	
  an	
  exchange	
  on	
  whether	
  China	
  would	
  
build	
  for	
  the	
  Philippines	
  the	
  kind	
  of	
  infrastructure	
  investments	
  that	
  it	
  has	
  built	
  in	
  
Africa.	
  However,	
  both	
  of	
  these	
  propositions	
  rest	
  on	
  a	
  prior	
  agreement	
  not	
  to	
  discuss	
  
sovereignty	
  issues.	
  Duterte	
  considers	
  the	
  Philippine	
  claims	
  to	
  be	
  valid	
  but	
  is	
  willing	
  
to	
  set	
  them	
  aside	
  for	
  the	
  moment	
  if	
  China	
  is	
  also	
  willing	
  to	
  do	
  so.	
  6	
  	
  
	
  
Duterte’s	
  appointed	
  Secretary	
  of	
  Foreign	
  Affairs,	
  Perfecto	
  Yasay,	
  Jr.	
  has	
  stated	
  that	
  
the	
  Duterte	
  administration	
  would	
  wait	
  for	
  the	
  decision	
  of	
  the	
  arbitration	
  panel	
  prior	
  
to	
  exhausting	
  all	
  negotiation	
  routes	
  for	
  peaceful	
  resolution	
  knowing	
  fully	
  well	
  that	
  
the	
  Philippines	
  cannot	
  engage	
  in	
  war	
  with	
  China.	
  	
  While	
  Yasay	
  knows	
  that	
  Manila’s	
  
ability	
  to	
  enforce	
  any	
  positive	
  decision	
  is	
  limited,	
  the	
  Duterte	
  administration	
  may	
  
think	
   that	
   such	
   a	
   conclusion	
   would	
   strengthen	
   its	
   hand	
   in	
   future	
   talks.	
   Duterte	
  
reportedly	
   confirmed	
   this	
   fact	
   in	
   his	
   telephone	
   conversation	
   with	
   U.S.	
   President	
  
Barrack	
   Obama	
   that	
   he	
   is	
   open	
   to	
   bilateral	
   talks	
   with	
   China	
   if	
   there	
   would	
   be	
  
difficulty	
  in	
  enforcing	
  an	
  impending	
  favourable	
  decision	
  from	
  the	
  tribunal.	
  
	
  
Heydarian	
  believes	
  that	
  in	
  foreign	
  and	
  defense	
  policy,	
  Duterte	
  is	
  expected	
  to	
  adopt	
  
an	
  equilateral	
  balancing	
  strategy,	
  similar	
  to	
  the	
  Ramos	
  and	
  Arroyo	
  administrations,	
  
reaching	
  out	
  to	
  both	
  China	
  and	
  America	
  without	
  siding	
  with	
  any	
  against	
  the	
  other.7	
  	
  
For	
  Duterte,	
  China	
  represents	
  a	
  unique	
  opportunity	
  to	
  develop	
  the	
  Philippines,	
  and	
  
he	
  prefers	
  diplomacy	
  and	
  dialogue	
  rather	
  than	
  confrontation	
  and	
  deterrence.	
  	
  
	
  
Some	
   analysts	
   however	
   are	
   confused	
   with	
   Duterte’s	
   rhetoric	
   –	
   on	
   one	
   hand	
   he	
  
suggests	
   a	
   willingness	
   to	
   engage	
   China	
   bilaterally	
   over	
   the	
   crisis	
   in	
   exchange	
   for	
  
Chinese	
  economic	
  investment,	
  on	
  the	
  other	
  he	
  proposes	
  a	
  multilateral	
  roundtable	
  
discussion	
  that	
  China	
  would	
  certainly	
  oppose.	
  The	
  shifting	
  policy	
  position	
  is	
  likely	
  to	
  
pose	
   challenges	
   for	
   the	
   Philippines’	
   key	
   external	
   partners—the	
  United	
  
States,	
  Japan	
  and	
   Australia.	
   Australia	
   on	
   its	
   part	
   is	
   considering	
   the	
   broader	
  
implications	
  for	
  its	
  defence	
  diplomacy	
  with	
  the	
  Philippines	
  under	
  Duterte,	
  given	
  its	
  
strategic	
   location,	
   and	
   its	
   approach	
   to	
   maritime	
   security,	
   counterterrorism	
   and	
  
other	
  aspects	
  of	
  regional	
  security.	
  If	
  Duterte	
  begins	
  to	
  shift	
  the	
  Philippines	
  defence	
  
posture	
  to	
  one	
  that’s	
  more	
  accommodating	
  of	
  China	
  in	
  the	
  South	
  China	
  Sea,	
  perhaps	
  
through	
  bilateral	
  arrangements	
  or	
  by	
  side-­‐stepping	
  the	
  outcome	
  of	
  the	
  arbitration,	
  
he	
  would	
  undermine	
  efforts	
  to	
  strengthen	
  the	
  rules-­‐based	
  international	
  order	
  that	
  
 4	
  
fundamentally	
   says	
   ‘might	
   does	
   not	
   make	
   right’,	
   and	
   which	
   is	
   a	
   key	
   assumption	
  
underpinning	
  Australian	
  defence	
  policy.	
  8	
  	
  
	
  
Needless	
   to	
   say,	
   the	
   West	
   Philippine	
   Sea	
   tension	
   has	
   seriously	
   affected	
   business	
  
decision	
   to	
   pursue	
   further	
   exploration	
   work	
   in	
   the	
   disputed	
   area	
   amidst	
   armed	
  
threat	
  to	
  seismic	
  vessels	
  and	
  drill	
  ships.	
  Unless	
  there	
  will	
  be	
  an	
  acceptable	
  solution	
  
to	
  the	
  contending	
  parties,	
  the	
  Philippines	
  will	
  see	
  a	
  dearth	
  of	
  exploration	
  activities	
  
in	
  its	
  exclusive	
  economic	
  zone	
  along	
  the	
  Northwest	
  Palawan	
  shelf.	
  
	
  
Renewable	
  Energy	
  and/or	
  Coal-­‐Fired	
  Power	
  Plants?	
  
	
  
The	
  relative	
  high	
  cost	
  of	
  electricity	
  and	
  the	
  unstable	
  supply	
  particularly	
  in	
  the	
  South	
  
have	
   dampened	
   investors’	
   enthusiasm	
   in	
   the	
   Philippines.	
   For	
   the	
   Duterte	
  
administration,	
  balancing	
  power	
  supply	
  problems	
  with	
  environmental	
  issues	
  will	
  be	
  
a	
  major	
  undertaking.	
  	
  
	
  
Environmental	
  groups	
  are	
  asking	
  Duterte	
  to	
  promote	
  renewable	
  energy,	
  cancel	
  all	
  
twenty-­‐seven	
  (27)	
  coal-­‐fired	
  power	
  plant	
  projects	
  in	
  the	
  pipeline	
  and	
  phase	
  out	
  the	
  
nineteen	
  (19)	
  existing	
  power	
  plants	
  that	
  run	
  on	
  coal.	
  Renewable	
  energy	
  developers	
  
that	
   the	
   Philippines’	
   meeting	
   its	
   commitments	
   made	
   in	
   Paris,	
   which	
   is	
   a	
   seventy	
  
percent	
   (70%)	
   reduction	
   in	
   carbon	
   emission,	
  is	
   a	
   step	
   in	
   the	
   right	
   direction.	
   The	
  
Department	
   of	
   Energy	
   (“DOE”)	
   under	
   the	
   Aquino	
   administration	
  pushed	
   for	
  the	
  
industry	
  to	
  source	
  30	
  percent	
  of	
  its	
  energy	
  requirements	
  from	
  coal,	
  30	
  percent	
  from	
  
renewable	
   energy	
   and	
   another	
   30	
   percent	
   from	
   natural	
   gas.	
   The	
   remaining	
   10	
  
percent	
  will	
  come	
  from	
  oil-­‐based	
  power	
  plants,	
  including	
  an	
  open	
  option	
  for	
  nuclear	
  
energy.	
  	
  
	
  
In	
   support	
   of	
   the	
   30-­‐30-­‐30	
   energy	
   mix,	
   the	
   Climate	
   Change	
   Commission	
   (“CCC”)	
  
embarked	
  on	
  a	
  virtual	
  crackdown	
  on	
  coal	
  power	
  generation	
  under	
  an	
  “urgent	
  and	
  
comprehensive”	
   review	
   of	
   the	
   government’s	
   energy	
   policy.	
  	
   Former	
   President	
  
Aquino	
  signed	
  Commission	
  Resolution	
  No.	
  2016-­‐001,	
  which	
  mandated	
  the	
  CCC	
  to	
  do	
  
“a	
  national	
  policy	
  review	
  and	
  framework	
  development	
  on	
  energy,	
  through	
  a	
  whole-­‐
of-­‐nation	
   approach,	
   in	
   accordance	
   with	
   a	
   low	
   carbon	
   development	
   pathway	
   and	
  
national	
   goals	
   and	
   targets	
   for	
   climate	
   change	
   mitigation	
   and	
   adaptation,	
   disaster	
  
risk	
   reduction	
   and	
   sustainable	
   development.”	
   In	
   the	
   resolution,	
   the	
   DOE,	
  
Department	
   of	
   Environment	
   and	
   Natural	
   Resources	
   (“DENR”),	
   and	
   the	
   National	
  
Economic	
  Development	
  Authority	
  are	
  urged	
  to	
  harmonize	
  policies	
  and	
  regulations	
  
on	
   new	
   and	
   existing	
   coal-­‐fired	
   power	
   plants	
   and	
   assess	
   their	
   impacts	
   on	
   the	
  
environment.9	
  On	
  the	
  other	
  hand	
  the	
  National	
  Renewable	
  Energy	
  Board	
  (“NREB”)	
  
recommended	
  that	
  the	
  new	
  government	
  level	
  the	
  playing	
  field	
  between	
  fossil-­‐fuel	
  
plants	
   and	
   indigenous	
   renewable-­‐energy	
   resources	
   by	
   strictly	
   implementing	
   the	
  
Clean	
   Air	
   Act,	
   Water	
   Code	
   and	
   other	
   environmental	
   laws,	
   and	
   by	
   removing	
   the	
  
automatic	
   pass-­‐through	
   of	
   fuel	
   costs	
   to	
   consumers	
   (this	
   provision	
   ensures	
   the	
  
profits	
  of	
  fossil-­‐fuel	
  plants	
  by	
  shielding	
  them	
  from	
  price	
  fluctuations).	
  	
  The	
  NREB	
  
also	
  recommended	
  the	
  full	
  implementation	
  of	
  the	
  mechanisms	
  and	
  incentives	
  under	
  
 5	
  
the	
   RE	
  Act	
  of	
  2008	
   and	
   fast-­‐tracking	
   of	
   the	
   approval	
   and	
   permits	
   for	
   renewable-­‐
energy	
  projects	
  at	
  all	
  levels.10	
  
	
  
However,	
   it	
   may	
   be	
   worth	
   remembering	
   that	
   the	
   issue	
   on	
   renewable	
   energy	
   and	
  
coal-­‐fired	
  power	
  plants	
  was	
  asked	
  of	
   Duterte	
  during	
  the	
  presidential	
  debates.	
  	
  In	
  
response,	
   he	
   said	
   that	
   the	
   United	
   Nations	
   should	
   first	
   focus	
   on	
   sanctioning	
  
developed	
  nations,	
  who	
  he	
  believes	
  contribute	
  more	
  pollution	
  than	
  the	
  Philippines.	
  
He	
  further	
  explained	
  that	
  the	
  country	
  needs	
  energy	
  to	
  industrialize,	
  thus	
  the	
  need	
  
for	
  more	
  energy	
  sources.	
  
	
  
"It's	
  not	
  fair.	
  I'm	
  not	
  saying	
  coal	
  is	
  right,	
  but	
  I'm	
  just	
  saying,	
  itong	
  United	
  
Nations	
   and	
   industrial	
   countries	
   are	
   really	
   hypocrites.	
   Gusto	
   nila,	
   'di	
  
bayaran	
  nila	
  tayo,	
  or	
  they	
  supply	
  us	
  with	
  hydro,	
  solar,	
  mahal	
  'yan.	
  Ngayon	
  
kung	
  idinamay	
  nila	
  tayo,	
  sila	
  naman	
  ayaw	
  maniwala,	
  and	
  yet	
  itong	
  United	
  
Nations	
  hypocrisy	
  because	
  they	
  cannot	
  enforce	
  sanctions	
  against	
  those	
  who	
  
are	
   violating,	
   everyday	
   there	
   is	
   sprouting	
   up	
   so	
   many	
   coal	
   fired	
   power	
  
plants.	
  We	
  only	
  contribute,	
  I	
  said,	
  to	
  the	
  carbon	
  footprints	
  so	
  very	
  little.	
  And	
  
yet,	
  we	
  are	
  a	
  growing	
  country,	
  we	
  need	
  to	
  industrialize,	
  we	
  need	
  energy.…	
  
xxx"11	
  
	
  
Duterte’s	
  Energy	
  Secretary	
  Alfonso	
  G.	
  Cusi	
  will	
  review	
  the	
  target	
  energy	
  mix	
  set	
  by	
  
the	
   Aquino	
   administration	
   to	
   determine	
   its	
   rationale.	
   Until	
   he	
   meets	
   with	
   DOE	
  
experts,	
  he	
  is	
  not	
  ready	
  to	
  give	
  an	
  ideal	
  combination	
  of	
  fuel	
  sources	
  but	
  whatever	
  
the	
  outcome	
  of	
  the	
  review	
  is,	
  coal	
  would	
  remain	
  a	
  significant	
  part	
  of	
  the	
  country’s	
  
energy	
  portfolio.	
  	
  Mr.	
  Cusi	
  said	
  he	
  would	
  also	
  look	
  into	
  the	
  available	
  options	
  for	
  the	
  
Bataan	
  nuclear	
  plant,	
  the	
  feasibility	
  of	
  putting	
  up	
  a	
  facility	
  for	
  liquefied	
  natural	
  gas,	
  
how	
   to	
   bring	
   down	
   power	
   rates,	
   the	
   connectivity	
   of	
   the	
   transmission	
   grid	
   to	
  
Mindanao,	
   and	
   a	
   new	
   round	
   of	
   feed-­‐in-­‐tariff	
   rates	
   for	
   renewable	
   energy	
   power	
  
plants.	
  
	
  
Bleak	
  Forecast	
  on	
  the	
  Mineral	
  Industry	
  	
  
	
  
Of	
  all	
  the	
  resources	
  policies	
  enunciated	
  by	
  Duterte	
  it	
  is	
  his	
  position	
  on	
  mining	
  that	
  
has	
  brought	
  considerable	
  apprehensions	
  if	
  not	
  frustration	
  to	
  the	
  resources	
  industry.	
  
In	
   a	
   business	
   summit	
   held	
   in	
   Davao	
   City,	
   Duterte	
   promised	
   to	
   conduct	
   a	
  
comprehensive	
   review	
   of	
   all	
   mining	
   permits	
   issued	
   by	
   the	
   government	
   the	
  
concessions	
  they	
  allow.12	
  The	
  president	
  has	
  reiterated	
  that	
  he	
  is	
  not	
  anti-­‐mining,	
  as	
  
he	
   believes	
   that	
   mining	
   is	
   a	
   key	
   player	
   in	
   the	
   Philippine	
   economy13.	
   Presidential	
  
Spokesperson	
   Ernesto	
   Abella	
   says,	
   “responsible	
   mining	
   plays	
   a	
   key	
   role	
   in	
   the	
  
Philippines”.	
  For	
  Duterte,	
  “The	
  keyword	
  here	
  is	
  responsible	
  hence,	
  if	
  you	
  cannot	
  do	
  
it	
   right,	
   then	
   get	
   out	
   of	
   mining.”14	
  Duterte	
   cited	
   the	
   big	
   mining	
   companies	
   as	
   the	
  
reason	
   for	
   environmental	
   destruction	
   and	
   dared	
   the	
   mining	
   industry	
   to	
   “shape	
  
up”.15	
  
	
  
The	
  President’s	
  stance	
  on	
  mining	
  was	
  further	
  put	
  to	
  question	
  when	
  he	
  appointed	
  
Regina	
   Paz	
   “Gina”	
   Lopez,	
   a	
   known	
   anti-­‐mining	
   advocate	
   and	
   scion	
   of	
   a	
   powerful	
  
 6	
  
family	
  with	
  business	
  interests	
  in	
  media	
  and	
  energy,	
  as	
  DENR	
  Secretary.	
  When	
  news	
  
broke	
   out	
   that	
   she	
   had	
   accepted	
   the	
   offer	
   to	
   be	
   DENR	
   Secretary,	
   mining	
   and	
   oil	
  
stocks	
  plunged	
  by	
  4.09	
  percent	
  at	
  the	
  end	
  of	
  trading	
  on	
  21	
  June	
  2016	
  despite	
  the	
  
overall	
  index	
  gaining	
  1.33	
  percent.16	
  Market	
  analysts	
  say	
  that	
  the	
  dump	
  on	
  mining	
  
stocks	
  on	
  was	
  because	
  of	
  the	
  expectations	
  that	
  regulations	
  for	
  mining	
  might	
  become	
  
more	
  challenging	
  under	
  the	
  new	
  administration.17	
  	
  
	
  
Upon	
   her	
   acceptance	
   of	
   the	
   position	
   offered	
   by	
   Duterte,	
   Lopez	
   said	
   there	
   was	
   no	
  
such	
   thing	
   as	
   responsible	
   mining	
   as	
   the	
   industry	
   caused	
   suffering	
   and	
   injustice	
  
especially	
  in	
  poor	
  areas.18	
  Lopez	
  has	
  promised	
  to	
  clamped	
  down	
  on	
  open	
  pit	
  mining	
  
operations,	
   nickel	
   laterite	
   and	
   coal	
   mining,	
   extractive	
   industries	
   in	
   Palawan,	
   and	
  
coal	
  fired	
  power	
  plants.	
  	
  She	
  has	
  started	
  by	
  strictly	
  enforcing	
  DENR	
  Administrative	
  
Order	
  No.	
  2015-­‐07	
  requiring	
  compliance	
  for	
  all	
  metal	
  miners	
  with	
  the	
  ISO	
  14001	
  
standard	
  which	
  lays	
  out	
  best	
  practices	
  in	
  environmental	
  management.	
  
	
  
She	
   does	
   admit	
   however,	
   that	
   she	
   was	
   not	
   “the	
   usual	
   choice”	
   for	
   such	
   position	
  
because	
  of	
  her	
  anti-­‐mining	
  advocacy	
  but	
  she	
  says	
  she	
  is	
  open	
  to	
  meeting	
  pro-­‐mining	
  
advocates	
   so	
   she	
   could	
   make	
   suggestions	
   on	
   how	
   to	
   address	
   the	
   concerns	
   in	
   the	
  
industry.	
  
	
  
Upstream	
  Petroleum	
  Industry	
  -­‐	
  Hanging	
  in	
  the	
  Balance	
  
	
  
The	
   new	
   government	
   must	
   also	
   address	
   two	
   major	
   issues	
   adversely	
   affecting	
  
petroleum	
   exploration	
   and	
   development	
   –	
   the	
   Resident	
  Marine	
  Mammal	
  case	
   and	
  
service	
  contractors’	
  income	
  tax	
  under	
  Presidential	
  Decree	
  No.	
  87.	
  
	
  
In	
   “Resident	
   Marine	
   Mammals	
   vs.	
   Sec.	
   Reyes”	
   case,	
   the	
   Supreme	
   Court	
   noted	
   that	
  
since	
  the	
  President	
  was	
  not	
  the	
  signatory	
  to	
  Service	
  Contract	
  No.	
  46	
  and	
  the	
  same	
  
was	
  not	
  submitted	
  to	
  Congress,	
  SC	
  46	
  was	
  null	
  and	
  void.	
  	
  This	
  was	
  despite	
  the	
  fact	
  
that	
   then	
   President	
   Gloria	
   Macapagal-­‐Arroyo	
   granted	
   a	
   Special	
   Authority	
   to	
   then	
  
DOE	
  Secretary	
  Vicente	
  Perez	
  and	
  that	
  Congress	
  had	
  been	
  notified	
  of	
  the	
  execution	
  of	
  
SC	
  46.	
  The	
  contractors	
  relied	
  on	
  good	
  faith	
  on	
  the	
  representation	
  of	
  the	
  Philippine	
  
government	
  that	
  the	
  signature	
  of	
  the	
  DOE	
  secretary	
  is	
  sufficient	
  and	
  validly	
  binds	
  
the	
  government.	
  To	
  the	
  industry,	
  it	
  is	
  an	
  “operative	
  fact”	
  that	
  after	
  the	
  execution	
  of	
  
service	
  contracts	
  that	
  are	
  only	
  signed	
  by	
  the	
  DOE	
  Secretary,	
  services	
  were	
  actually	
  
rendered	
  and	
  continue	
  to	
  be	
  rendered.	
  Thus,	
  not	
  only	
  has	
  the	
  contractors	
  already	
  
spent	
   millions	
   for	
   their	
   respective	
   projects,	
   the	
   government	
   has	
   conversely	
  
benefited	
  from	
  such	
  transactions.	
  	
  
	
  
The	
  industry	
  also	
  expressed	
  its	
  alarm	
  and	
  deep	
  concern	
  regarding	
  COA	
  Decision	
  No.	
  
2015-­‐	
  115,	
  affirming	
  a	
  Notice	
  of	
  Charge	
  directing	
  the	
  DOE	
  to	
  collect	
  P53	
  billion	
  from	
  
the	
   SC	
   38	
   Consortium	
   (composed	
   of	
   Shell	
   Philippines	
   Exploration	
   B.V.	
   Chevron	
  
Malampaya	
  LLC,	
  and	
  PNOC	
  Exploration	
  Corporation).	
  	
  Contrary	
  to	
  the	
  COA	
  Decision,	
  
the	
   Philippine	
   government	
   through	
   the	
   DOE	
   has	
   represented	
   that	
   Presidential	
  
Decree	
  No.	
  87	
  [Section	
  l	
  8(b)]	
  and	
  Presidential	
  Decree	
  No.	
  1459	
  (Section	
  1)	
  clearly	
  
provided	
  that	
  the	
  Contractor's	
  income	
  tax	
  forms	
  part	
  of	
  the	
  60%	
  Government	
  share.	
  
 7	
  
All	
  of	
  the	
  active	
  petroleum	
  service	
  contracts	
  with	
  the	
  government	
  follow	
  the	
  DOE’s	
  
interpretation	
  that	
  the	
  Contractor's	
  income	
  tax	
  forms	
  part	
  of	
  the	
  60%	
  government	
  
share.	
  	
  The	
  issue	
  is	
  now	
  under	
  arbitration	
  proceedings.	
  
	
  
In	
  light	
  of	
  the	
  foregoing,	
  the	
  industry	
  calls	
  on	
  the	
  new	
  administration	
  to	
  ensure	
  the	
  
sanctity	
   of	
   contracts	
   and	
   the	
   rule	
   of	
   law,	
   particularly	
   for	
   long	
   term	
   contracts	
  
involving	
  substantial	
  investment	
  by	
  foreign	
  and	
  local	
  investors.	
  In	
  addition	
  to	
  these	
  
game	
  changers,	
  the	
  industry	
  raises	
  issues	
  that	
  are	
  currently	
  hounding	
  the	
  industry	
  
which	
   includes:	
   Processing	
   time	
   and	
   bureaucracy	
   in	
   relation	
   to	
   approval	
   of	
   Tax	
  
Exemption	
   Certificates;	
   Customs,	
   Immigration,	
   and	
   Quarantine	
   issues;	
   Effluent	
  
standards	
   and	
   water	
   classification	
   regulations	
   by	
   the	
   DENR;	
   exploration	
   on	
  
ancestral	
  domain	
  claims	
  and	
  free	
  prior	
  and	
  informed	
  consent	
  under	
  the	
  Indigenous	
  
People’s	
   Rights	
   Act;	
   and	
   Amendment	
   of	
   Executive	
   Order	
   No.	
   556	
   to	
   provide	
  
flexibility	
  to	
  Philippine	
  National	
  Oil	
  Company	
  –	
  Exploration	
  Corporation	
  in	
  farming	
  
in	
  and	
  out	
  of	
  service	
  contracts.	
  	
  
	
  
Conclusion	
  
	
  
Despite	
  Duterte’s	
  unorthodox	
  style	
  and	
  controversial	
  statements	
  on	
  issues	
  relating	
  
to	
   the	
   resources	
   industry,	
   he	
   must	
   reassure	
   the	
   business	
   community	
   that	
   his	
  
government	
  can	
  take	
  the	
  Philippines	
  to	
  the	
  next	
  level	
  of	
  inclusive	
  economic	
  growth	
  
through	
  adherence	
  to	
  the	
  rule	
  of	
  law,	
  respect	
  for	
  the	
  sanctity	
  of	
  contracts	
  and	
  the	
  
country’s	
   international	
   obligations,	
   ease	
   of	
   doing	
   business	
   by	
   automating	
   and	
  
streamlining	
  the	
  permitting	
  process,	
  and	
  addressing	
  bottlenecks	
  in	
  infrastructure.	
  	
  
	
  
The	
  best	
  assurance	
  he	
  can	
  give	
  to	
  the	
  industry	
  is	
  using	
  his	
  mandate	
  and	
  political	
  
capital	
   to	
   reestablish	
   law	
   and	
   order	
   and	
   push	
   his	
   economic	
   agenda	
   to	
   include	
  
charter	
  change	
  and	
  other	
  legislative	
  initiatives	
  that	
  will	
  open	
  the	
  economy	
  to	
  fair	
  
competition	
  and	
  leveling	
  the	
  playing	
  field	
  for	
  all	
  stakeholders.	
  	
  	
  
	
  
Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law
Offices (www.punopenalaw.com). He specializes in Energy and Resources Law, Project
Finance and Business Development.
	
  
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
1 Cureg, Elyzabeth F. and Matunding, Jennifer F. Federalism Initiatives in the Philippines (2006).
Available at http://localgov.up.edu.ph/federalism-and-multiculturalism-cureg-and-matunding-
federalism-initiatives-in-the-philippines.html
2 Móntes, Jr., Raphael N. Understanding Federalism (2006). Available at
http://localgov.up.edu.ph/federalism-and-multiculturalism-montes-understanding-
federalism.html, citing Gamper.
3 Id.
4 Id.
5 Soong, Martin, Pugnacious Duterte may need to temper rhetoric as Presidential era begins
Martin Soong, CNBC.com
6 Rood, Steven, Asia Foundation
 8	
  
	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
7	
  Soong, Martin, Pugnacious Duterte may need to temper rhetoric as Presidential era begins
Martin Soong, CNBC.com	
  
8 Davis, Malcolm, What does Rodrigo Duterte mean for South China Sea tensions? 12 May 2016
9 http://business.inquirer.net/211497/boom-in-renewables-drives-energy-remix.html
10 Great Expectations, the Philippine version: A ‘wish list’ for the Duterte administration, Business
Mirror – 12 May 2016
11 ABS-CBN News. What Presidential Bets Think About Climate Change, Renewable Energy.
Available at http://news.abs-cbn.com/nation/03/20/16/what-presl-bets-think-about-climate-
change-renewable-energy, last accessed 27 June 2016.
12 Jiao, Claire. Mining Has Place in Duterte Economic Agenda – MVP. Available at
http://cnnphilippines.com/business/2016/06/22/manny-pangilinan-rodrigo-duterte-gina-lopez-
mining-economic-agenda.html last accessed 27 June 2016
13 Romero, Alexis and Adel, Rosette. Duterte Camp Says Mining Key Player in Philippine
Economy. Available at http://www.philstar.com/headlines/2016/06/23/1595899/duterte-camp-
says-mining-key-player-philippine-economy, last accessed 27 June 2016
14 Id.
15 GMA News. Duterte Accuses Big Mining Firms of Destroying the Environment. Available at
http://www.gmanetwork.com/news/story/568799/money/companies/duterte-accuses-big-
mining-firms-of-destroying-the-environment, last accessed 27 June 2016
16 Pazzibugan, Dona Z., Dumlao-Abadilla, Doris, and Yee, Jovic. Gina Lopez Spooks Mining
Stocks. Available at http://business.inquirer.net/211271/gina-lopez-spooks-mining-stocks, last
accessed 24 June 2016.
17 Id.
18 Domingo, Ronnel W. Gina Lopez: Where there’s mining, there is also poverty. Available at
http://business.inquirer.net/211327/gina-lopez-where-theres-mining-there-is-also-poverty, last
accessed 24 June 2016

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Duterte boon or bane to the resources industry

  • 1.  1   Duterte  -­‐  A  Boon  or  Bane  to  the  Resources  Industry?     President  Rodrigo  Roa  Duterte  will  handle  many  issues  that  will  have  an  impact  on   the  resources  industry  as  he  embark  on  his  six  years  of  governance.  A  few  of  these   important  issues  include  the  proposed  shift  to  a  federal  form  of  government,  peace   and   order,   the   role   of   the   mineral   industry   in   economic   development,   renewable   energy  vis  a  vis  coal-­‐fired  power  plants,  and  the  West  Philippine  Sea  dispute  with   China.         Duterte   is   the   first   City   Mayor   and   Prosecutor   to   become   president   without   previously  holding  a  national  position  and  the  oldest  to  assume  the  presidency  at  71   years  old.  He  is  the  first  chief  executive  from  Mindanao  bringing  with  him  extensive   managerial   skills   as   mayor   of   multi-­‐cultured   Davao   City,   the   city   with   the   largest   land   area   in   the   Philippines   and   formerly   a   hotbed   of   criminality   and   insurgency   from  both  communist  rebels  and  Muslim  secessionists.     Laying  the  Grounds  for  Federalism     Duterte   was   one   of   advocates   for   the   push   for   federalism   during   the   campaign   period.   Coming   from   Mindanao,   Duterte   supports   greater   decentralization,   autonomy   and   resource   sharing   for   the   South   from   “Imperial   Manila”.   To   him,   federalism   is   the   antidote   to   bureaucratic   centralism   –   a   legacy   of   old   colonial   powers  and  ruling  political  dynasties  that  cultivate  corruption  and  patronage.  When   one  thinks  of  examples  of  federalist  countries,  the  firsts  that  will  always  come  to   mind  are  the  United  States  of  America  and  Commonwealth  of  Australia.       The  calls  for  charter  change  have  been  persistent  over  the  years  as  many  agree  that   the   1987  Constitution   is   flawed.   Bills   calling   for   an   amendment   or   revision   of   the   present   constitution   have   not   prospered   as   many   argued   that   it   is   nothing   but   a   veiled   attempt   of   the   incumbent   Chief   Executive   to   be   given   a   term   extension.   Presently,  the  idea  for  a  charter  change  is  not  about  giving  the  sitting  president  a   term   extension   but   most   likely   shifting   from   a   unitary-­‐presidential   system   to   a   federal-­‐parliamentary   form   of   government   through   an   elected   constitutional   convention.     The   Citizens   Movement   for   a   Federal   Philippines   noted   that   the   current   unitary   system   breeds   inefficiency   because   of   the   following   factors:   detached   decision   making  from  the  people;  complex  and  complicated  coordination  among  the  different   government   agencies;   long   and   circuitous   communication   lines;   and   over-­‐ concentration  of  powers  in  the  central  government.  These  have  resulted  to  uneven   development,  insurgency,  and  dissatisfaction  across  the  country.1     Gamper  (2005)  enumerates  the  following  institutional  standards  that  are  present  in   federal  systems:  distribution  of  powers  between  the  central  and  constituent  units,   the   participation   of   the   constituent   at   the   central   level   of   decision-­‐making,   constitutional   autonomy   of   the   constituent   units,   fiscal   equalization   and  
  • 2.  2   intergovernmental   instruments.2     While   federalism   is   not   the   cure,   it   may   be   an   answer   to   the   country’s   problems   that   are   rooted   in   its   multi-­‐cultural   nature.3     However,  federalism’s  complex  nature  demands  careful  study  as  each  country  must   discern  for  itself  the  version  of  federalism  it  will  be  well  suited  to.  That  said,  the   constitutional   framers   must   also   be   conscious   of   the   unique   conditions   in   the   Philippines  that  will  shape  the  type  of  federation  to  be  adopted.4       The   Regalian   Doctrine   posits   the   query   on   the   implications   of   federalism   on   the   exploration,   development   and   utilization   of   natural   resources.   While   the   Regalian   Doctrine  means  that  all  the  lands  are  owned  by  the  State,  federalism  as  a  form  of   government  may  possibly  blur  the  lines  between  what  are  owned  by  the  State  as  a   whole  and  what  are  owned  by  the  federal  subdivisions  in  their  own  capacity.  The   charter  change  to  federalism  will  also  be  an  opportune  time  to  lift  the  restrictive   economic   provisions   in   the   Constitution   and   grant   more   foreign   ownership   in   certain  industries  including  energy  and  resources.     The  “Punisher”  and  His  Crusade  for  Peace  and  Order     Among   the   campaign   promises   of   Duterte   were   curbing   criminality   and   forging   lasting   peace   with   sworn   enemies   of   the   Philippine   government.     There   are   now   relentless   efforts   by   the   new   administration   to   address   common   crimes   in   urban   areas   and   renewed   focus   to   solve   insurgencies   and   terrorism   in   the   countryside.     Direct   foreign   investments   in   infrastructure   and   natural   resources   have   been   hindered  in  poverty-­‐stricken  areas  where  they  are  much  needed  because  of  security   issues.     The   Duterte   administration   recommenced   the   stalled   peace   process   with   the   communists   when   government   peace   negotiators   met   with   representatives   of   the   political   arm   of   the   Communist   Party   of   the   Philippines,   the   National   Democratic   Front  in  Oslo,  Norway  on  13-­‐14  June  2016.    Talks  with  Muslim  secessionist  groups   are  being  planned  with  Duterte  hoping  that  federalism  will  finally  be  the  solution  to   the  Mindanao  conflict.     Richard  Javad  Heydarian  who  teaches  political  science  and  international  affairs  at   De   La   Salle   University   and   a   widely   published   author   whose   commentaries   have   appeared  in  the  New  York  Times  and  the  Wall  Street  Journal,  believes  that  in  peace   talks  with  communists  and  Muslim  rebels,  Duterte  will  rely  heavily  on  Jesus  Dureza,   an   experienced   peace   negotiator   who   served   in   the   previous   Ramos   and   Arroyo   administrations.   Duterte   has   also   given   cabinet   positions,   like   the   Department   of   Agrarian   Reform   and   Department   of   Social   Welfare   and   Development,   to   progressives  forging  a  de  facto  coalition  with  the  left.  Heydarian  thinks  that  Duterte,   is   signaling   change   and   continuity,   by   forming   a   balanced   and   gender   sensitive   cabinet   with   the   right   kind   of   experience   and   inclusiveness   that   could   steer   the   country  towards  the  next  stage  of  development.  Duterte  has  pledged  to  continue  the   reforms   of   previous   administrations   while   upgrading   them   by   bringing   in   more   rapid   infrastructure   development,   agricultural   sector   revival,   and   manufacturing  
  • 3.  3   boom.  5  If  Duterte  is  true  to  his  promise,  we  may  see  a  surge  in  foreign  investments   particularly   in   Southern   Philippines,   which   has   a   tremendous   potential   to   be   the   country’s  next  growth  driver.     Mixed  Signals  on  the  West  Philippine  Sea  Dispute  and  Foreign  Policy     In  international  affairs,  Duterte’s  position  on  the  West  Philippine  Sea  is  generally   misunderstood.  He  pledges  to  try  to  implement  any  decision  of  the  Permanent  Court   of   Arbitration   in   The   Hague   currently   hearing   the   maritime   dispute,   which   is   decision  is  widely  anticipated  to  be  favourable  to  the  Philippines,  but  at  the  same   time  pragmatic  on  the  enforceability  of  the  judgment.  Duterte  said  he  is  open  to  joint   resource   development   schemes   in   order   to   overcome   intractable   sovereignty   disputes  with  China,  or  that  he  would  base  an  exchange  on  whether  China  would   build  for  the  Philippines  the  kind  of  infrastructure  investments  that  it  has  built  in   Africa.  However,  both  of  these  propositions  rest  on  a  prior  agreement  not  to  discuss   sovereignty  issues.  Duterte  considers  the  Philippine  claims  to  be  valid  but  is  willing   to  set  them  aside  for  the  moment  if  China  is  also  willing  to  do  so.  6       Duterte’s  appointed  Secretary  of  Foreign  Affairs,  Perfecto  Yasay,  Jr.  has  stated  that   the  Duterte  administration  would  wait  for  the  decision  of  the  arbitration  panel  prior   to  exhausting  all  negotiation  routes  for  peaceful  resolution  knowing  fully  well  that   the  Philippines  cannot  engage  in  war  with  China.    While  Yasay  knows  that  Manila’s   ability  to  enforce  any  positive  decision  is  limited,  the  Duterte  administration  may   think   that   such   a   conclusion   would   strengthen   its   hand   in   future   talks.   Duterte   reportedly   confirmed   this   fact   in   his   telephone   conversation   with   U.S.   President   Barrack   Obama   that   he   is   open   to   bilateral   talks   with   China   if   there   would   be   difficulty  in  enforcing  an  impending  favourable  decision  from  the  tribunal.     Heydarian  believes  that  in  foreign  and  defense  policy,  Duterte  is  expected  to  adopt   an  equilateral  balancing  strategy,  similar  to  the  Ramos  and  Arroyo  administrations,   reaching  out  to  both  China  and  America  without  siding  with  any  against  the  other.7     For  Duterte,  China  represents  a  unique  opportunity  to  develop  the  Philippines,  and   he  prefers  diplomacy  and  dialogue  rather  than  confrontation  and  deterrence.       Some   analysts   however   are   confused   with   Duterte’s   rhetoric   –   on   one   hand   he   suggests   a   willingness   to   engage   China   bilaterally   over   the   crisis   in   exchange   for   Chinese  economic  investment,  on  the  other  he  proposes  a  multilateral  roundtable   discussion  that  China  would  certainly  oppose.  The  shifting  policy  position  is  likely  to   pose   challenges   for   the   Philippines’   key   external   partners—the  United   States,  Japan  and   Australia.   Australia   on   its   part   is   considering   the   broader   implications  for  its  defence  diplomacy  with  the  Philippines  under  Duterte,  given  its   strategic   location,   and   its   approach   to   maritime   security,   counterterrorism   and   other  aspects  of  regional  security.  If  Duterte  begins  to  shift  the  Philippines  defence   posture  to  one  that’s  more  accommodating  of  China  in  the  South  China  Sea,  perhaps   through  bilateral  arrangements  or  by  side-­‐stepping  the  outcome  of  the  arbitration,   he  would  undermine  efforts  to  strengthen  the  rules-­‐based  international  order  that  
  • 4.  4   fundamentally   says   ‘might   does   not   make   right’,   and   which   is   a   key   assumption   underpinning  Australian  defence  policy.  8       Needless   to   say,   the   West   Philippine   Sea   tension   has   seriously   affected   business   decision   to   pursue   further   exploration   work   in   the   disputed   area   amidst   armed   threat  to  seismic  vessels  and  drill  ships.  Unless  there  will  be  an  acceptable  solution   to  the  contending  parties,  the  Philippines  will  see  a  dearth  of  exploration  activities   in  its  exclusive  economic  zone  along  the  Northwest  Palawan  shelf.     Renewable  Energy  and/or  Coal-­‐Fired  Power  Plants?     The  relative  high  cost  of  electricity  and  the  unstable  supply  particularly  in  the  South   have   dampened   investors’   enthusiasm   in   the   Philippines.   For   the   Duterte   administration,  balancing  power  supply  problems  with  environmental  issues  will  be   a  major  undertaking.       Environmental  groups  are  asking  Duterte  to  promote  renewable  energy,  cancel  all   twenty-­‐seven  (27)  coal-­‐fired  power  plant  projects  in  the  pipeline  and  phase  out  the   nineteen  (19)  existing  power  plants  that  run  on  coal.  Renewable  energy  developers   that   the   Philippines’   meeting   its   commitments   made   in   Paris,   which   is   a   seventy   percent   (70%)   reduction   in   carbon   emission,  is   a   step   in   the   right   direction.   The   Department   of   Energy   (“DOE”)   under   the   Aquino   administration  pushed   for  the   industry  to  source  30  percent  of  its  energy  requirements  from  coal,  30  percent  from   renewable   energy   and   another   30   percent   from   natural   gas.   The   remaining   10   percent  will  come  from  oil-­‐based  power  plants,  including  an  open  option  for  nuclear   energy.       In   support   of   the   30-­‐30-­‐30   energy   mix,   the   Climate   Change   Commission   (“CCC”)   embarked  on  a  virtual  crackdown  on  coal  power  generation  under  an  “urgent  and   comprehensive”   review   of   the   government’s   energy   policy.     Former   President   Aquino  signed  Commission  Resolution  No.  2016-­‐001,  which  mandated  the  CCC  to  do   “a  national  policy  review  and  framework  development  on  energy,  through  a  whole-­‐ of-­‐nation   approach,   in   accordance   with   a   low   carbon   development   pathway   and   national   goals   and   targets   for   climate   change   mitigation   and   adaptation,   disaster   risk   reduction   and   sustainable   development.”   In   the   resolution,   the   DOE,   Department   of   Environment   and   Natural   Resources   (“DENR”),   and   the   National   Economic  Development  Authority  are  urged  to  harmonize  policies  and  regulations   on   new   and   existing   coal-­‐fired   power   plants   and   assess   their   impacts   on   the   environment.9  On  the  other  hand  the  National  Renewable  Energy  Board  (“NREB”)   recommended  that  the  new  government  level  the  playing  field  between  fossil-­‐fuel   plants   and   indigenous   renewable-­‐energy   resources   by   strictly   implementing   the   Clean   Air   Act,   Water   Code   and   other   environmental   laws,   and   by   removing   the   automatic   pass-­‐through   of   fuel   costs   to   consumers   (this   provision   ensures   the   profits  of  fossil-­‐fuel  plants  by  shielding  them  from  price  fluctuations).    The  NREB   also  recommended  the  full  implementation  of  the  mechanisms  and  incentives  under  
  • 5.  5   the   RE  Act  of  2008   and   fast-­‐tracking   of   the   approval   and   permits   for   renewable-­‐ energy  projects  at  all  levels.10     However,   it   may   be   worth   remembering   that   the   issue   on   renewable   energy   and   coal-­‐fired  power  plants  was  asked  of   Duterte  during  the  presidential  debates.    In   response,   he   said   that   the   United   Nations   should   first   focus   on   sanctioning   developed  nations,  who  he  believes  contribute  more  pollution  than  the  Philippines.   He  further  explained  that  the  country  needs  energy  to  industrialize,  thus  the  need   for  more  energy  sources.     "It's  not  fair.  I'm  not  saying  coal  is  right,  but  I'm  just  saying,  itong  United   Nations   and   industrial   countries   are   really   hypocrites.   Gusto   nila,   'di   bayaran  nila  tayo,  or  they  supply  us  with  hydro,  solar,  mahal  'yan.  Ngayon   kung  idinamay  nila  tayo,  sila  naman  ayaw  maniwala,  and  yet  itong  United   Nations  hypocrisy  because  they  cannot  enforce  sanctions  against  those  who   are   violating,   everyday   there   is   sprouting   up   so   many   coal   fired   power   plants.  We  only  contribute,  I  said,  to  the  carbon  footprints  so  very  little.  And   yet,  we  are  a  growing  country,  we  need  to  industrialize,  we  need  energy.…   xxx"11     Duterte’s  Energy  Secretary  Alfonso  G.  Cusi  will  review  the  target  energy  mix  set  by   the   Aquino   administration   to   determine   its   rationale.   Until   he   meets   with   DOE   experts,  he  is  not  ready  to  give  an  ideal  combination  of  fuel  sources  but  whatever   the  outcome  of  the  review  is,  coal  would  remain  a  significant  part  of  the  country’s   energy  portfolio.    Mr.  Cusi  said  he  would  also  look  into  the  available  options  for  the   Bataan  nuclear  plant,  the  feasibility  of  putting  up  a  facility  for  liquefied  natural  gas,   how   to   bring   down   power   rates,   the   connectivity   of   the   transmission   grid   to   Mindanao,   and   a   new   round   of   feed-­‐in-­‐tariff   rates   for   renewable   energy   power   plants.     Bleak  Forecast  on  the  Mineral  Industry       Of  all  the  resources  policies  enunciated  by  Duterte  it  is  his  position  on  mining  that   has  brought  considerable  apprehensions  if  not  frustration  to  the  resources  industry.   In   a   business   summit   held   in   Davao   City,   Duterte   promised   to   conduct   a   comprehensive   review   of   all   mining   permits   issued   by   the   government   the   concessions  they  allow.12  The  president  has  reiterated  that  he  is  not  anti-­‐mining,  as   he   believes   that   mining   is   a   key   player   in   the   Philippine   economy13.   Presidential   Spokesperson   Ernesto   Abella   says,   “responsible   mining   plays   a   key   role   in   the   Philippines”.  For  Duterte,  “The  keyword  here  is  responsible  hence,  if  you  cannot  do   it   right,   then   get   out   of   mining.”14  Duterte   cited   the   big   mining   companies   as   the   reason   for   environmental   destruction   and   dared   the   mining   industry   to   “shape   up”.15     The  President’s  stance  on  mining  was  further  put  to  question  when  he  appointed   Regina   Paz   “Gina”   Lopez,   a   known   anti-­‐mining   advocate   and   scion   of   a   powerful  
  • 6.  6   family  with  business  interests  in  media  and  energy,  as  DENR  Secretary.  When  news   broke   out   that   she   had   accepted   the   offer   to   be   DENR   Secretary,   mining   and   oil   stocks  plunged  by  4.09  percent  at  the  end  of  trading  on  21  June  2016  despite  the   overall  index  gaining  1.33  percent.16  Market  analysts  say  that  the  dump  on  mining   stocks  on  was  because  of  the  expectations  that  regulations  for  mining  might  become   more  challenging  under  the  new  administration.17       Upon   her   acceptance   of   the   position   offered   by   Duterte,   Lopez   said   there   was   no   such   thing   as   responsible   mining   as   the   industry   caused   suffering   and   injustice   especially  in  poor  areas.18  Lopez  has  promised  to  clamped  down  on  open  pit  mining   operations,   nickel   laterite   and   coal   mining,   extractive   industries   in   Palawan,   and   coal  fired  power  plants.    She  has  started  by  strictly  enforcing  DENR  Administrative   Order  No.  2015-­‐07  requiring  compliance  for  all  metal  miners  with  the  ISO  14001   standard  which  lays  out  best  practices  in  environmental  management.     She   does   admit   however,   that   she   was   not   “the   usual   choice”   for   such   position   because  of  her  anti-­‐mining  advocacy  but  she  says  she  is  open  to  meeting  pro-­‐mining   advocates   so   she   could   make   suggestions   on   how   to   address   the   concerns   in   the   industry.     Upstream  Petroleum  Industry  -­‐  Hanging  in  the  Balance     The   new   government   must   also   address   two   major   issues   adversely   affecting   petroleum   exploration   and   development   –   the   Resident  Marine  Mammal  case   and   service  contractors’  income  tax  under  Presidential  Decree  No.  87.     In   “Resident   Marine   Mammals   vs.   Sec.   Reyes”   case,   the   Supreme   Court   noted   that   since  the  President  was  not  the  signatory  to  Service  Contract  No.  46  and  the  same   was  not  submitted  to  Congress,  SC  46  was  null  and  void.    This  was  despite  the  fact   that   then   President   Gloria   Macapagal-­‐Arroyo   granted   a   Special   Authority   to   then   DOE  Secretary  Vicente  Perez  and  that  Congress  had  been  notified  of  the  execution  of   SC  46.  The  contractors  relied  on  good  faith  on  the  representation  of  the  Philippine   government  that  the  signature  of  the  DOE  secretary  is  sufficient  and  validly  binds   the  government.  To  the  industry,  it  is  an  “operative  fact”  that  after  the  execution  of   service  contracts  that  are  only  signed  by  the  DOE  Secretary,  services  were  actually   rendered  and  continue  to  be  rendered.  Thus,  not  only  has  the  contractors  already   spent   millions   for   their   respective   projects,   the   government   has   conversely   benefited  from  such  transactions.       The  industry  also  expressed  its  alarm  and  deep  concern  regarding  COA  Decision  No.   2015-­‐  115,  affirming  a  Notice  of  Charge  directing  the  DOE  to  collect  P53  billion  from   the   SC   38   Consortium   (composed   of   Shell   Philippines   Exploration   B.V.   Chevron   Malampaya  LLC,  and  PNOC  Exploration  Corporation).    Contrary  to  the  COA  Decision,   the   Philippine   government   through   the   DOE   has   represented   that   Presidential   Decree  No.  87  [Section  l  8(b)]  and  Presidential  Decree  No.  1459  (Section  1)  clearly   provided  that  the  Contractor's  income  tax  forms  part  of  the  60%  Government  share.  
  • 7.  7   All  of  the  active  petroleum  service  contracts  with  the  government  follow  the  DOE’s   interpretation  that  the  Contractor's  income  tax  forms  part  of  the  60%  government   share.    The  issue  is  now  under  arbitration  proceedings.     In  light  of  the  foregoing,  the  industry  calls  on  the  new  administration  to  ensure  the   sanctity   of   contracts   and   the   rule   of   law,   particularly   for   long   term   contracts   involving  substantial  investment  by  foreign  and  local  investors.  In  addition  to  these   game  changers,  the  industry  raises  issues  that  are  currently  hounding  the  industry   which   includes:   Processing   time   and   bureaucracy   in   relation   to   approval   of   Tax   Exemption   Certificates;   Customs,   Immigration,   and   Quarantine   issues;   Effluent   standards   and   water   classification   regulations   by   the   DENR;   exploration   on   ancestral  domain  claims  and  free  prior  and  informed  consent  under  the  Indigenous   People’s   Rights   Act;   and   Amendment   of   Executive   Order   No.   556   to   provide   flexibility  to  Philippine  National  Oil  Company  –  Exploration  Corporation  in  farming   in  and  out  of  service  contracts.       Conclusion     Despite  Duterte’s  unorthodox  style  and  controversial  statements  on  issues  relating   to   the   resources   industry,   he   must   reassure   the   business   community   that   his   government  can  take  the  Philippines  to  the  next  level  of  inclusive  economic  growth   through  adherence  to  the  rule  of  law,  respect  for  the  sanctity  of  contracts  and  the   country’s   international   obligations,   ease   of   doing   business   by   automating   and   streamlining  the  permitting  process,  and  addressing  bottlenecks  in  infrastructure.       The  best  assurance  he  can  give  to  the  industry  is  using  his  mandate  and  political   capital   to   reestablish   law   and   order   and   push   his   economic   agenda   to   include   charter  change  and  other  legislative  initiatives  that  will  open  the  economy  to  fair   competition  and  leveling  the  playing  field  for  all  stakeholders.         Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law Offices (www.punopenalaw.com). He specializes in Energy and Resources Law, Project Finance and Business Development.                                                                                                                   1 Cureg, Elyzabeth F. and Matunding, Jennifer F. Federalism Initiatives in the Philippines (2006). Available at http://localgov.up.edu.ph/federalism-and-multiculturalism-cureg-and-matunding- federalism-initiatives-in-the-philippines.html 2 Móntes, Jr., Raphael N. Understanding Federalism (2006). Available at http://localgov.up.edu.ph/federalism-and-multiculturalism-montes-understanding- federalism.html, citing Gamper. 3 Id. 4 Id. 5 Soong, Martin, Pugnacious Duterte may need to temper rhetoric as Presidential era begins Martin Soong, CNBC.com 6 Rood, Steven, Asia Foundation
  • 8.  8                                                                                                                                                                                                                                                                                                                                             7  Soong, Martin, Pugnacious Duterte may need to temper rhetoric as Presidential era begins Martin Soong, CNBC.com   8 Davis, Malcolm, What does Rodrigo Duterte mean for South China Sea tensions? 12 May 2016 9 http://business.inquirer.net/211497/boom-in-renewables-drives-energy-remix.html 10 Great Expectations, the Philippine version: A ‘wish list’ for the Duterte administration, Business Mirror – 12 May 2016 11 ABS-CBN News. What Presidential Bets Think About Climate Change, Renewable Energy. Available at http://news.abs-cbn.com/nation/03/20/16/what-presl-bets-think-about-climate- change-renewable-energy, last accessed 27 June 2016. 12 Jiao, Claire. Mining Has Place in Duterte Economic Agenda – MVP. Available at http://cnnphilippines.com/business/2016/06/22/manny-pangilinan-rodrigo-duterte-gina-lopez- mining-economic-agenda.html last accessed 27 June 2016 13 Romero, Alexis and Adel, Rosette. Duterte Camp Says Mining Key Player in Philippine Economy. Available at http://www.philstar.com/headlines/2016/06/23/1595899/duterte-camp- says-mining-key-player-philippine-economy, last accessed 27 June 2016 14 Id. 15 GMA News. Duterte Accuses Big Mining Firms of Destroying the Environment. Available at http://www.gmanetwork.com/news/story/568799/money/companies/duterte-accuses-big- mining-firms-of-destroying-the-environment, last accessed 27 June 2016 16 Pazzibugan, Dona Z., Dumlao-Abadilla, Doris, and Yee, Jovic. Gina Lopez Spooks Mining Stocks. Available at http://business.inquirer.net/211271/gina-lopez-spooks-mining-stocks, last accessed 24 June 2016. 17 Id. 18 Domingo, Ronnel W. Gina Lopez: Where there’s mining, there is also poverty. Available at http://business.inquirer.net/211327/gina-lopez-where-theres-mining-there-is-also-poverty, last accessed 24 June 2016